Board agenda for a tough year

By Parmi Natesan and Prof Prieur du Plessis

The year 2022 will continue to test boards, and half the battle will be ensuring they have the right items on their agendas.

The COVID-19 dust storm may be clearing, but the changes it has ushered in have created a uniquely testing environment. Boards, as custodians of an organisation’s strategy and ultimately its ability to prosper into the future, have a tougher job on their hands than ever.

To ensure that they can safely navigate these treacherous waters, boards must give thought to what should be on their agendas over the coming months. Board meetings are relatively infrequent; the right agenda is key to maximising the benefit for the organisation.

Key issues that should be considered for a permanent place on the board agenda include:

Resilience. An important lesson of the past two years is that the unexpected does happen. Because one simply cannot foresee – and plan – for everything, it’s important that the organisation is resilient enough to respond to, and recover from, black-swan events. Business continuity has been a board concern for many years, but the discussion needs to expand to cover resilience, including the agility to respond to change rapidly.

Environmental, social and governance (ESG). Climate change – and more particularly decarbonisation and water management – are top of mind for many investors and stakeholders, as well as employees. Boards need to give serious consideration to what metrics they will use to measure the organisation’s current state and goals. Stakeholders also want to see organisations coming to grips with how climate change will impact the organisation.

A word of caution: Bearing their fiduciary duty in mind, boards cannot afford to succumb to populist clamour ̶ in this case to reach “Net Zero”. At the very least, they need to be able to convince their stakeholders that reduced profits or job losses are an acceptable trade-off. The tendency for corporates to adopt currently fashionable viewpoints unthinkingly could have severely negative long-term consequences for them.
Management incentives to drive ESG targets need to be considered carefully, bearing unintended consequences in mind.

Communication. It is widely accepted that corporates need to take into account the broader society in which they operate, but there are indications that the goal posts are shifting. For example, the 2021 Edelman Trust Barometer reports that 61% of respondents expect CEOs to fix social problems, a role that government, they feel, is not playing, with 65% feeling that CEOs should be as accountable to the public as they are to their shareholders. It is becoming ever more important to have open lines of communication with stakeholders, both to build mutual understanding and to manage expectations.

Strategy. Setting and maintaining strategy are a key board function, but many boards may not yet have fully understood the impact of an extremely volatile and fast-changing business and social environment. Is the board devoting enough time to deep discussions with management about the future and how the strategy needs to adapt constantly? Does the board create and explore a large enough range of scenarios in order to minimise the chances of being blindsided?

A related issue is that of the business model itself. As the COVID-19 pandemic so graphically demonstrated, an organisation must be able to adapt its business model quickly, or develop a totally new one, to survive. The current supply chain disruptions are a reminder of how boards might need to consider strategically areas that previously had been simply operational.

Risk. Risk and opportunity are often interrelated, as King IV suggests. Boards might consider placing risk across several portfolios so it is considered in context, for example the ethical risks attached to the use of artificial intelligence, data risk, cyber risk, talent risk and, of course, fraud risk. Separating risk from audit ̶ the typical custom is to have an audit and risk committee ̶ has the advantage of freeing up an already overburdened audit function.

Regulatory risk is also a growing category that boards need to understand.

Technology and its implications. This is an existing agenda item that probably deserves more discussion. Much of the organisation’s risk and opportunity are related to technology ̶ is the board discussion deep and informed enough?

Workforce strategy. The “great resignation” and new work styles are highlighting the need to be able to attract and retain the right talent – workforce strategy is driving corporate success more than ever before. A related issue is gender and diversity – the temptation to adopt fashionable opinion should be resisted to address these serious issues strategically and in line with the organisation’s best interests. Succession planning for top management is also a priority.

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Parmi Natesan		Dr Prieur du Plessis